The major challenge for the federal government in the budget expected this month is to maintain its commitment to progressive social and economic policies in the context of a major shift to the political right in the United States.
In the last election and in the 2015 budget, the Trudeau government promised to champion the middle-class "and those seeking to join it" by fighting growing inequality. It increased the tax rate for very-high-income earners, delivered a modest but equalizing reform of child benefits as well as improved public pensions and promised to focus on job growth through investments in public infrastructure, innovation and skills.
In a keynote speech in Germany on Feb. 17, Prime Minister Trudeau again underlined the dangers of right-wing populism, noting that "increasing inequality has made citizens distrust their governments" and arguing that it is "time to get real about the challenges facing the middle-class."
However, there is no shortage of voices in Canada calling on the federal government to temper its progressive agenda. It is said by most Conservatives and many pundits that, faced with a Republican-ruled United States, taxes will have to be cut, that we can no longer afford to set a price on carbon or to regulate in the public interest, and that the federal government should reign in its supposedly alarming deficits.
To the contrary, the government has much more to do to promote greater equality and better social and economic performance, and the means to do so.
The economic case for major public-infrastructure investments is as strong as ever given what the Bank of Canada describes as a "persistent economic slack … in contrast to the United States," weak growth projections for 2017 and stalled job creation.
The government has promised to develop an anti-poverty agenda in co-operation with the provinces. This will mean addressing the ongoing growth of precarious work by strengthening minimum wage and other labour standards, by supplementing the low incomes of the working poor through increases to the now-paltry Working Income Tax Benefit and by undertaking major investments in training for low-skilled and other workers affected by global competition and rapid technological change.
Most urgently, the government has barely begun to act on its promises to bring about transformational change for First Nations communities through investments in education and basic infrastructure.
Tackling inequality and promoting greater social well-being will require moving in directions not now contemplated by the Liberal government, including through major federal contributions to a national child care and early learning program, a national pharmacare program and significantly expanded home care and institutional-care services for the elderly.
In the absence of increased federal transfers, most provinces will struggle to maintain, let alone improve, vital public services. The Liberal government has the resources to act. Notwithstanding the screams of outrage from conservative quarters that greeted the recent Department of Finance projection of federal deficits out to 2021, the federal debt-to-GDP ratio will slowly decline from a level that is the envy of other major economies. Long-term interest rates remain at near-record-low levels.
Significant new revenues could, and should, be raised – by tackling tax loopholes for the most affluent, as promised in the Liberal election platform. A committee of experts appointed by Finance Minister Bill Morneau is reviewing preferential tax treatment of executive stock options, capital gains and dividends as well as the egregious boutique tax credits introduced by the Conservatives.
Innovation is expected to be a major theme in the budget, appropriately given our overdependence upon the extraction and export of energy and other raw materials and the relative underdevelopment of the so-called knowledge-based economy of high-end manufacturing, information technology and sophisticated services.
We should not allow the temporary ascendancy of climate change dinosaurs in the United States to distract us from the task of transitioning to a much less carbon-intensive economy through major job- and opportunity-creating investments in renewable energy and conservation.
This transition should be a central focus of the hands-on sectoral development policies proposed to Mr. Morneau by his Economic Advisory Council. A new innovation strategy should include Made-in-Canada government procurement policies and public-equity investments in innovative new companies and a review of the tax breaks which have failed to turn around Canada's lacklustre productivity record.
The key mistake for the Trudeau government would be to renege on an already modest agenda in order to imitate President Donald Trump's United States when it comes to taxes, regulation of the corporate sector in the public interest and activist social and economic policies.
Canada is not an island. But progressive policies, rather than a race to the bottom, will create not just a fairer society, but also a more productive and future-oriented economy.